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2016 (11) TMI 1153 - ITAT MUMBAI

2016 (11) TMI 1153 - ITAT MUMBAI - TMI - Assessment of income from mall operation - “income from house property” OR "business income" - Held that:- We notice that the assessee has constructed a shopping mall as per its objects for which it was incorporated and has derived income from running and maintaining the shopping mall. The activities carried on by the assessee, which are extracted above, would show that the assessee is carrying on the activities as its trading/commercial activity. - A .....

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from Shopping Mall as business income. - Disallowance made u/s 14A - Held that:- We are of the view that the claim of the assessee that the investment was made only of Share application money needs factual verification. Accordingly we restore this matter to the file of the AO with the direction to examine the factual aspects and decide this issue by following the decision rendered by the jurisdictional High Court in the case of HDFC Bank Ltd (2014 (8) TMI 119 - BOMBAY HIGH COURT). With regar .....

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with the direction to examine the factual aspects and decide the issue by following the decision rendered by jurisdictional High Court in the case of Ovira Logistics P Ltd [2015 (4) TMI 684 - BOMBAY HIGH COURT] - I.T.A. No. 1783/Mum/2015 - Dated:- 23-9-2016 - Shri B.R. Baskaran (AM) & Shri Amarjit Singh (JM) For The Assessee : Shri Rajesh Athavale and Ms. Bhakti Shah For The Department : Ms. Radha Katyal Narang ORDER Per B.R. Baskaran (AM) :- The appeal filed by the assessee is directed agai .....

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consideration. The assessee declared income derived from mall operations under head income from business . The Assessing Officer assessed the same under head income from house property and learned CIT(A) also confirmed the same. 4. We have heard the parties and perused the record. Learned AR submitted that mall consists of five floors, a multiplex theatre with five screens and parking lot with capacity of 600 cars and 700 two wheelers. Besides the above mall is also having an auditorium for pub .....

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and the same are extracted below:- Complex Commercial Activity-The Company has to provide the following services to the licensees/occupants in order to enable them to earn more revenue from the Mall operation, which would in turn result into more revenue for the Company from Mall operations: a) 24 hrs Mall Security Services, Housekeeping services, gardening, pest control for the common area of the mall. b) Maintenance & regular cleaning of the common areas of the mall & elevation of the .....

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viding space for Advertising in the mall premises at various places in the mall. h) Organizing various events & programmers at regular intervals & at the time of festivals to promote the foot fall in the mall. i) Providing & maintaining common parking facilities. j) Providing assistance in market survey, customer complaints etc to the occupants. k) Providing piped music in the mall. l) Fire detection & protection system in the common Areas. m) Providing facilities for loading &am .....

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were deployed for the performance of the above mentioned activities. All these activities were performed and managed through various managers and ultimately board of directors of the Company. The Company had submitted a statement giving details of party wise revenue received during the year under different heads, vide letter dated 11 December 2012. Accordingly, income derived by the Company from provision of space within Mall along with various services would be taxable under the head 'Busi .....

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nts, providing piped music in the mall etc. The Company during the year under consideration has incurred Marketing and Advertisement expenses of INR 1.07 crores on the operation of the Mall. The Company has carried out various promotional activities in the Mall to attract customers to the Mall. The Company has incurred expenses on various promotional activities carried out within the Mall. Advertisement of Mall would include regular advertisements in print and electronic media, hoardings in the .....

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t is not merely providing facilities such as electricity bill, water charges, AC charges etc. The Company also carries out regular review of the service standard in the Mall. The copy of the said report is submitted which emphasizes the fact that the Company is required to meet very high service standards in order to attract Licensees as well as customers to the Mall. The said service standard findings would go to show that the Company is required to provide highest level of services within the .....

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t has agreed on different billing arrangement with each licencee. These arrangements are different from mere renting of property wherein rent is fixed per month, independent of business generated by the Licensees. In most of the cases, it is in the form of revenue sharing whichis dependent on income generated by the Licensee. None of the licensee has an option to pay only for use of the building and have his own resources for the other services. Extracts of agreements, entered with various Licen .....

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se. He submitted that the Tribunal, in the following cases, has held that the income derived from running shopping malls is required to be assessed under the head Income from business (a) PFH Mall & Retail management Vs. ITO (298 ITR (AT) 371)(Kol) (b) ACIT Vs. Stellar Developers P Ltd (ITA No.4891/Mum/2008)(Mum) 6. On the contrary, learned Departmental Representative strongly supported the orders passed by the learned CIT(A). 7. We have heard the parties and perused the record. We notice th .....

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appeals have been filed. 2. The issue involved in all these appeals is common but it pertains to different Assessment Years and therefore, all these appeals had been heard together. The facts in all these appeals, in a nutshell are as under: The appellant-assessee, a private limited company, is having house property, which has been rented and the assessee is receiving income from the said property by way of rent. The main issue in all these appeals is whether the income so received should be tax .....

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Revenue is that as the income is arising from House Property, the said income must be taxed under the head Income from House Property . 3. The learned counsel appearing for the assessee submitted that the issue involved in these appeals is no more res integra as this Court has decided in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is having his house property and by way of business he is giving the property on rent .....

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y, the judgment in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) which has summed up as under:- As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of it .....

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he fact that the High Court and the authorities below had come to a specific finding to the effect that the assessee company had stopped its other business activities and was having only an activity with regard to the leasing its properties and earning rent therefrom. Thus, except leasing the properties belonging to the assessee company, the company is not having any other business and the said fact is not in dispute at all. 7. For the afore-stated reasons, the learned counsel submitted that the .....

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. v. CIT, Calcutta (1972) 1 SCC 465. According to him, the important question which would arise in all such cases is whether the acquisition of property for leasing and letting out all the shops and stalls would be essentially a part of business and trading operations of the assessee. According to the learned counsel appearing for the Revenue, leasing and letting out of shops and properties is not the main business of the assessee as per Memorandum of Association and therefore, the income earned .....

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squarely covered by the said judgment. 10. Submissions made by the learned counsel appearing for the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head Profits and Gains of Business or Profession . It is an admitted fact in the instant case that the assessee company has only one business and that is of leasing its .....

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by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property. 13. We, therefore, set aside the impugned judgments and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head Profits and gains of business or profession . 8. In the case of Chennai P .....

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siness income. The Hon ble Apex Court took note of the fact that the main object of the assessee was to acquire and hold the properties known as Chennai House and Firhavin Estate and to let those properties as well as to make advances upon the security of lands and buildings or other properties. The Hon ble Apex Court further observed as under:- What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It m .....

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where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or subletting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. 9. In the instant case, we h .....

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fficer premises, shops, shopping malls, cinema halls clubs………. And maintaining for shopping arcade, mall, shops, dwelling houses, office premises and other commercial and educational purposes…. (B) Other objects of the Company as per Memorandum of Association: Object No.34:- To carry on business of running a Super shop, shopping mall, Multi shop, Departmental Stores, chain Stores, Speciality stores…. Object No.35:- To build, construct, establish, own, take on l .....

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erived income from running and maintaining the shopping mall. The activities carried on by the assessee, which are extracted above, would show that the assessee is carrying on the activities as its trading/commercial activity. 10. In the case of PFH Mall & Retail management Vs. ITO (298 ITR (AT) 371)(Kol), the Kolkatta bench of Tribunal held that income from Mall operation is assessable as business income, since various services & facilities as well as other amenities similar to company .....

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(A) on this issue and direct the AO to assess the income from Shopping Mall as business income. 12. The next issue contested by the assessee relates to the disallowance made u/s 14A of the Act. The AO applied the provisions of Rule 8D to compute the disallowance. The case of the assessee is that the Share application money, which was not immediately required for mall construction purposes, was invested in mutual funds in order to earn dividend income. Accordingly it was submitted that there is n .....

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